Business Report: Kraft Foods Profitable and Positive
Signs of recovery are becoming evident in the Consumer Goods industry with Kraft Foods Inc reporting an 11 percent hike in its second quarter profits. The announcement comes as FMCG majors are revising their earnings estimates for the full year ahead, amidst improving market conditions and exchange rates that are favourable for the American companies. A full fledged revival of fortunes, however, is not on the cards yet.
Kraft is the manufacturer of some of the popular brands such as Oreo, Splendips, Crystal, Golden Harvest, Maxwell House etc with its product categories ranging from Quick Meals to Snacks to Health Foods. Kraft Food’s net income stood at $827 million, up from $745 million last quarter.
Kraft has been able to shore up its figures in a rather depressing economy by paring costs down to a minimum. Apart from its own efforts at costs, Kraft saw most of its raw material prices getting reduced by considerable margins – costs in terms of coffee, milk and cheese have been lesser than what they cost last quarter.
Yet another reason for its improved performances lied in its heavy promotions. The “Push” strategy worked in getting more of those chips and biscuits off the shelves of retailers, with freebies ruling the roost. However, unit prices have not come down following cost reductions – companies wouldn’t want to risk reduction of retail selling prices in accordance with costs and then find themselves in dicey situations, being caught off hand with a spurt in raw material costs. However, the “Push” effect may not take the company far enough if it doesn’t consolidate on its products’ movements with brand building. Kraft has signalled it was very much willing to step on the advertising and promo gas to cement customer loyalty.
The quarter has also seen the dollar easing up a bit, helping Kraft draw more mileage out of its overseas operations. The previous quarter wasn’t all that lucky with a strong dollar bearing heavily on the bottom line.
Kraft excused itself out of the Salmonella Scare that afflicted food producers in the United States, that saw major consumer goods companies like Nestle and Kellogg’s pull their products off the shelf – FDA had warned people against all products peanut following the shocking state of affairs at the bankrupt and contaminated Peanuts Corporation of America.
The going seems so far so good, with Kraft looking upwards for the full year. Hopefully, some brand building would follow to capitalise on the heavy “pushing” momentum.
